First of all, I would like to disclose that I am not a real estate broker who specializes in listing short sales. However, I have heard that many real estate agents who are "short sale specialists" try to convince underwater homeowners to do a short sale as a way to lessen the blow to their credit score.

So needless to say, I was a little surprised as I read the latest California Association of REALTORS e-newsletter last week...with the headline story from The New York Times that quoted:

"Although short sales have a reputation for being easier on credit scores than foreclosures, 'that's a fairly common misperception,' said Rod Griffin, the director of consumer and public education at Experian, one of the major credit bureaus. If there is a difference in impact, according to Experian, it is slight. Both short sales and foreclosures remain on the credit report for seven years - but foreclosures don't appear until the legal paperwork is filed, and that could take months, Mr. Griffin said.

The effect was measured by an analysis by VantageScore, a provider of credit scores used by lenders. The higher the credit rating a consumer has, the more points he or she would lose in a short sale.

If consumers started with, say, an 830 score, they would most likely lose 100 to 110 points from a short sale, 120 to 130 points from a foreclosure. But a homeowner with a 625 score, who is behind on his mortgage and some credit card payments, would lose 15 to 25 points from a short sale and 10 to 20 points from a foreclosure, the VantageScore analysis shows."

What does this essentially mean for distressed homeowners?

If you have excellent credit, it makes sense to do a short sale instead of a foreclosure.

If you have mediocre credit, a foreclosure will have less of an impact on your credit score.